The $1.5 trillion tax cut sought by Republicans reflects lessons learned from past attempts to design revenue-neutral tax reform in which Congress’s “arcane rules” forced bad policy decisions, Office of Management and Budget Director Mick Mulvaney said October 24.
“What the Senate budget did . . . is to essentially give us $1.5 trillion to play with outside the rules,” Mulvaney said during an on-stage interview at the Securities Industry and Financial Markets Association’s annual meeting in Washington.
That $1.5 trillion cushion gives Republicans the freedom to include proposals that “we still think [are] going to raise more money, but which the [Congressional Budget Office] would score as negative,” Mulvaney said, using deemed repatriation as an example.
According to Mulvaney, the CBO assumes that 35 percent of foreign corporate profits held overseas will eventually be repatriated at the full corporate tax rate, but “we all know that’s never going to happen.” He explained that when Republicans propose to deem repatriation at a lower rate, the CBO considers that a revenue loss because the repatriated earnings are being taxed at a lower rate, whereas the Trump administration considers that to be new revenue because it would never have been repatriated otherwise.
“So much of what you’ve seen in the past is driven by this need to shoehorn policy into these arcane rules of the CBO driven by the 1974 Budget Act,” Mulvaney said. “We’ve written the policy to the rules, instead of making the rules bend to the policy; that’s what we’re doing here . . . and we’re very excited about some of the policies that we think can get passed as a result of that.”
According to Mulvaney, the administration is still pushing to lower the corporate tax rate to 15 percent, rather than the 20 percent rate specified in the Republicans’ tax reform framework. However, after acknowledging that the House has been reluctant to embrace the 15 percent rate, he said that “we’ll probably settle” around 20 percent, but added that it is “very unlikely to go much higher than that.”
Mulavaney expressed confidence about tax reform’s chances of success this year, dismissing the feud between President Trump and Sen. Bob Corker, R-Tenn., as a “sideshow” with no bearing on tax reform’s outcome. He also said the reported agreement by House Republicans to accept the Senate’s fiscal 2018 budget resolution without going to conference would advance tax reform’s timeline by about three weeks.
He then defended Republicans’ aim to try to pass tax reform without Democrats’ support, saying that the bipartisan 1986 tax reform effort was possible only because of the existence of conservative Southern Democrats.
“If you can fashion something that gets 51 or 52 votes in the Senate, you’ve done a really good job of getting a piece of legislation that appeals to a broad philosophical spectrum,” Mulvaney said.
Earlier that day, Sen. David Perdue, R-Ga., praised the proposed $1.5 trillion tax cut, saying it gives Republican lawmakers the opportunity to "absolutely get a return on whatever deficit spending is necessary to get competitive with the rest of the world.”
Speaking in Washington on a panel hosted by the Heritage Foundation, Perdue said that in his past experience with helping ailing companies get back on track, he was never able to cut a company’s spending or raise prices to solve its problem; rather, “the only way we were able to dig out of it was to grow out of it.”
Another panelist, Joshua Bolten of the Business Roundtable, added that the United States faces a long-term fiscal crisis and a short- and medium-term growth crisis. Cutting spending won’t be enough to fix the fiscal crisis, and it would do nothing to help the economy — so instead, “we should be doing competitive tax reform,” Bolten said.
Bolten suggested that corporate leaders would be willing to sacrifice tax breaks if it meant achieving their larger tax reform goals. Base-broadening and anti-base-erosion measures like limiting the interest deduction or imposing a global minimum tax are necessary for tax reform, and the CEOs represented by the Business Roundtable understand that, he said.
“All of those moving pieces can and should be moved if the product is [the] substantial lowering of our rate to a competitive level and a shift to a territorial system,” Bolten said. “Some will experience a tax increase, others a tax cut, but the important thing is you won’t be penalized for locating your [headquarters] in the U.S.”
But Perdue was less than enthusiastic about at least one major pay-for: deemed repatriation.
“I have a very strong point of view on this. . . . I think [the repatriation tax rate] should be zero,” Perdue said, adding that he also viewed deemed repatriation as “penalizing someone that’s been obeying the law up until now.”
Perdue dismissed the suggestion that allowing companies to repatriate their existing foreign profits tax-free would amount to forgoing all revenue from it, saying that even if corporations just use their untaxed repatriated earnings for buybacks, they’re buying shares from people who own their shares, who then go and buy other shares.
“It’s gonna get pretty much recirculated into the economy,” Perdue said. “Same thing with dividends, except with dividends . . . you’re gonna get double taxed.”
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